Kaiju Bank has $6 million CET1 capital, $1 million additional Tier 1 capital and $2 million Tier 2 Capital. Its total assets are $150 million with an average risk weight of 60%. The bank plans to issue $2 million new common stock and invest the money in mortgages (risk weight 50%). The bank will then : the minimum Tier 1 capital requirement. Suppose the minimum countercyclical buffer requirement is 2.5%, The bank wil v the capital conservation buffer meet requirement. not meet The minimum capital ratios are CET1 ratio 4.5%, Tier 1 capital ratio 6% and Total capital ratio 8% respectively.

Kaiju Bank has $6 million CET1 capital, $1 million additional Tier 1 capital and $2 million Tier 2 Capital. Its total assets are $150 million with an average risk weight of 60%. The bank plans to issue $2 million new common stock and invest the money in mortgages (risk weight 50%). The bank will then : the minimum Tier 1 capital requirement. Suppose the minimum countercyclical buffer requirement is 2.5%, The bank wil v the capital conservation buffer meet requirement. not meet The minimum capital ratios are CET1 ratio 4.5%, Tier 1 capital ratio 6% and Total capital ratio 8% respectively.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

stealth bank has deposits of $700 million. And hold reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at the current market value, would be worth $600 million. What is the value of the biggest total liabilities?
. A bank is attempting to determine where its assets should be invested during the currentyear. At present, $500,000 is available for investment in bonds, home loans, auto loans,and personal loans. The annual rate of return on each type of investment is known to be:bonds, 10%; home loans, 16%; auto loans, 13%; personal loans, 20%. To ensure that thebank’s portfolio is not too risky, the bank’s investment manager has placed the followingthree restrictions on the bank’s portfolio:a. The amount invested in personal loans cannot exceed the amount invested inbonds.b. The amount invested in home loans cannot exceed the amount invested in autoloans.c. No more than 25% of the total amount invested may be in personal loans.The bank’s objective is to maximize the annual return on its investment portfolio.Formulate an LP that will enable the bank to meet this goal.
A bank is planning to make a loan of sh.5,000,000 to a firm in the steel industry. It expects to charge a servicing fee of 50 basis points. The loan has a maturity of 8 years with a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the bank is 10 percent. Assume the bank has estimated the maximum change in the risk premium on the steel manufacturing sector to be approximately 4.2 percent, based on two years of historical data. The current market interest rate for loans in this sector is 12 percent. Required: Using the RAROC model, determine whether the bank should make the loan Kindly calculate without excel.
A bank is attempting to determine where its assets should be invested during the current year. At present, $500,000 is available for investment in bonds, home loans, auto loans, and personal loans. The annual rates of return on each type of investment are known to be the following: bonds, 10%; home loans, 16%; auto loans, 13%; and personal loans, 20%. To ensure that the bank’s portfolio is not too risky, the bank’s investment manager has placed the following three restrictions on the bank’s portfolio:■ The amount invested in personal loans cannot exceed the amount invested in bonds.■ The amount invested in home loans cannot exceedthe amount invested in auto loans.■ No more than 25% of the total amount invested can be in personal loans. Help the bank maximize the annual return on its investment portfolio.
A bank is planning to make a loan of $25,000,000 to a firm in the steel industry. It expects to charge a servicing fee of 50 basis points. The loan has a maturity of 8 years and a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the bank is 10 percent. Assume the bank has estimated the maximum change in the risk premium on the steel manufacturing sector to be approximately 4.2 percent, based on two years of historical data. The current market interest rate for loans in this sector is 12 percent. a. What should be the duration in order for this loan to be approved? b. Assuming that duration cannot be changed, how much additional interest and fee income would be necessary to make the loan acceptable? c. Given the proposed income stream and the negotiated duration, what adjustment in the risk premium would be necessary to make the loan acceptable?
Suppose that the assets of a bank consists of $100 million of loans to A rated corporations. The PD for the corporations is estimated as 0,1% and LGD is 60%. The average maturity is 2.5 years for corporate loans. What is RWA?.
Simile Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24% per annum. The company spends, on the average, P40 for every cash conversion to marketable securities. What is the Total Opportunity Cost of keeping cash in the bank?
Buccaneer, Inc., has determined that it needs $10 million in cash per week. If Buccaneer needs additional cash, it can sell marketable securities, incurring a fee of $100 for each transaction. If Buccaneer leaves funds in its marketable securities, it expects to earn approximately 0.2% per week on their investment. Calculate for the cash infusion of 2 million or 3 million then solve for Transaction Cost and Holding Cost.
ike Bank starts with $3000 in bank capital. It then accepts $2000 in deposits. It keeps 25 percent of deposits in reserve. It uses the rest of its assets to make bank loans. a. Show the balance sheet of Like Bank.b. What is Like Bank’s leverage ratio?c. Suppose that 15 percent of the borrowers from like Bank default and these bank loans become worthless. Show the bank’s new balance sheet.
) Prince Edward Bank considers increasing a type of loans in the credit portfolio by $3,500,000,which will generate a gross income of 2.5%p.a. The bank assumes PD is 10% and estimates LGDis 20% and EAD as 80%. The net income, which is gross income minus Expected Loss (i.e. EL),will be used in the RAROC analysis. When doing so, the Bank refers to the net income andunexpected loss (i.e. UL) as the capital-as-risk estimation.Required:If the ROE of Prince Edward Bank is targeted at 25%, analyze whether the loans could be addedto the portfolio by RARoC analysis
Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) K20 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) K70 Equity K2 Total Assets K185 Total Liabilities & Equity K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 50%…
Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses: Assets Liabilities and Equity Cash (0%) K20 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) K70 Equity K2 Total Assets K185 Total Liabilities & Equity K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), and K300 million in six-year interest rate swaps.…